Think Piece: The Royalty Siphon Runs Both Ways - July 26

The music industry in mid-2026 is undergoing a structural bifurcation: capital is consolidating at unprecedented scale — billions flowing into catalog acquisition, major distribution mergers, and AI generation tools — while the economic ground underneath working artists continues to erode. The through-line across all six essays is a fight over who captures value from music, and the answer in almost every arena is: not the artist who made it. AI attribution remains unsolved, mechanical royalties bleed toward the majors by default, streaming platforms siphon royalties toward ghost artists and house-brand filler, and the superstar model that once justified the whole system is structurally dead. The counter-argument is also present: independent artists who understand the new terrain — who own their fan relationships, register their works, and treat listeners as people rather than stream counts — have access to tools and economics that never existed before.

Transcript

SPEAKER_00 0:00

In this Think Peace episode, we explore the following five stories that are entirely redefining the music industry. First, the AI money problem and the daily flood of 90,000 uncredited tracks.

SPEAKER_01 0:11

Right.

SPEAKER_00 0:11

Second, the consolidation super cycle, where billions are buying up the industry's distribution pipes. Third, streaming's structural rot, contrasting Spotify's ad tech DNA with Kuba's human touch.

SPEAKER_01 0:25

Huge contrast there.

SPEAKER_00 0:27

Yeah, completely. Fourth, the death of the superstar and the shift to the relationship economy. And fifth, the 2027 mechanical royalty time bomb ticking under independent songwriters.

SPEAKER_01 0:38

It is a massive lineup. And you know, to really understand where this industry stands in mid-2026, you kind of have to look at this uh this massive structural bifurcation happening right under our noses.

SPEAKER_00 0:48

Aaron Powell Yeah, if you zoom out for a deep dive on this, you just see this incredible split screen. I mean, the very top capital is consolidating at a scale we haven't seen in decades.

SPEAKER_01 0:56

Oh, absolutely.

SPEAKER_00 0:56

We're talking about massive $7 billion corporate mergers and towering $2.23 billion private equity funds, just buying up catalogs left and right.

SPEAKER_01 1:06

Aaron Powell But then you know on the ground level, the working artists, the people actually writing the music you listen to every day, they are watching their fundamental economics just totally dissolve.

SPEAKER_00 1:16

Trevor Burrus It is a profound disconnect for sure. Trevor Burrus, Jr.

SPEAKER_01 1:18

It really is. The systems designed to support creators are actively pivoting to extract value from them instead. And uh if you want to understand how that value is being stripped away, you really have to look at the sheer volume of content currently overwhelming the system's architecture.

SPEAKER_00 1:34

Aaron Powell Yeah, which takes us straight into the AI money problem. Let me just put the scale of this into perspective for you. Based on internal data from the streaming platform Deezer, there are currently 90,000 AI-generated tracks being uploaded to their servers every single day.

SPEAKER_01 1:50

Aaron Powell Just wow, pause and think about that for a second. 90,000 tracks.

SPEAKER_00 1:54

Every 24 hours, it is literally an ocean of synthetic audio. Okay, let's unpack this because a research group called STVDIO has mapped this crisis out into three very distinct layers.

SPEAKER_01 2:05

Right, which are detection, attribution, and compensation.

SPEAKER_00 2:09

Exactly. And for you listening to really grasp that middle layer, the attribution layer, think of it like this. Right now, the industry standard is what they call model level attribution. Right. Imagine throwing a single penny into a giant city-sized wishing well.

SPEAKER_01 2:24

Okay, I can picture that.

SPEAKER_00 2:25

Everyone who's copyrighted music was scraped to train that AI model gets a microscopic, entirely untraceable splash of that penny. That is the approach companies like Eleven Labs and Landar are currently taking.

SPEAKER_01 2:40

What the ecosystem actually needs to survive is output level attribution.

SPEAKER_00 2:44

Aaron Powell Right. That is like walking into a coffee shop, going up to a specific artist's tip jar and dropping a dollar bill directly in it because their specific vocal tone or uh guitar style was just utilized to generate a new AI track.

SPEAKER_01 2:57

Trevor Burrus That is exactly the distinction we need to be making. And what's fascinating here is how fragmented and chaotic the technology sector's response is to building those tip jars.

SPEAKER_00 3:05

It was a total mess.

SPEAKER_01 3:06

It really is. I mean, the first layer you brought up, detection, is arguably the furthest along. At the point of upload, distributors are deploying these heavy-duty third-party tools, right, like mobile, which operates PEX.

SPEAKER_00 3:19

Right, and Cyanite and Audible Magic, and ACR cloud is in there too.

SPEAKER_01 3:23

Exactly. These systems are scanning audio fingerprints, basically desperately trying to catch synthetic audio before it hits the digital shelf. But there is a staggering institutional blind spot here.

SPEAKER_00 3:34

Aaron Powell Oh, the streaming platforms themselves.

SPEAKER_01 3:36

Yes. The two biggest streaming platforms on Earth, Spotify and Apple Music, currently have absolutely no in-house AI detection tools of their own.

SPEAKER_00 3:44

Aaron Powell Wait, really? None.

SPEAKER_01 3:46

Aaron Powell None. They're outsourcing the liability entirely. They just rely on whatever the distributors like FUGA or Create Music choose to report to them.

SPEAKER_00 3:54

Aaron Powell Which feels like running a massive international airport and entirely outsourcing your security checks to the taxi drivers dropping people off outside. I mean, is a massive vulnerability.

SPEAKER_01 4:04

Aaron Powell That's a great way to put it.

SPEAKER_00 4:06

And once you move past detection and try to actually solve attribution, you know, actually tracing which human being influenced an AI generation, the tech gets even messier.

SPEAKER_01 4:17

Oh, completely.

SPEAKER_00 4:18

You have companies like Musical AI working with platforms like Beethoven.ai to build those exact tip jars we talked about. They trigger royalties the exact moment a track is generated.

SPEAKER_01 4:29

But then look at a company like Udio and their Starstruck app. They take a totally different approach.

SPEAKER_00 4:34

Trevor Burrus, Jr. Right. They will pay the specific artist whose song you directly remix on the app, but they pay absolutely zero to the collective genre artists whose styles train their underlying model.

SPEAKER_01 4:46

Aaron Powell Yeah. And then you have this forensic approach, right? The after-the-fact attribution. Trevor Burrus, Jr.

SPEAKER_00 4:50

Right. Companies like Surreal, which Warner Music Group actually just acquired, by the way.

SPEAKER_01 4:54

Trevor Burrus, Yes. They are analyzing already released AI music and retroactively mapping the likely human influences so they can try to collect on the back end.

SPEAKER_00 5:02

Aaron Powell That Warner Music Group acquisition of Surreal is a massive signal of where the major labels think the puck is going.

SPEAKER_01 5:08

Absolutely. Because if we connect this to the bigger picture, you have to look at what the broader capital markets are incentivizing right now. Yeah.

SPEAKER_00 5:16

Follow the money.

SPEAKER_01 5:16

Exactly. Musical AI, which is trying to build that ethical, consent-based, output level attribution. They recently raised $4.5 million.

SPEAKER_00 5:26

Okay. Decent seed round.

SPEAKER_01 5:28

But look at Suno. Suno is an AI generation company facing massive existential legal battles, right? They operate with almost zero licensing deals from the traditional music industry. Yeah. Yet they just raised $400 million at a $5.4 billion valuation.

SPEAKER_00 5:45

Wow. So the venture capital market is looking at a massive industry-wide copyright lawsuit and just pricing it in as a standard cost of doing business.

SPEAKER_01 5:54

Precisely. They are rewarding the disruption rather than the ethical accounting.

SPEAKER_00 5:58

Yeah, the VC ecosystem is sending a very clear message here. They believe that attribution without consent is a highly viable business model.

SPEAKER_01 6:07

The assumption is just, you know, scrape the data, build a monopolistic product, and we'll figure out the financial settlements later.

SPEAKER_00 6:13

Man, well, if 90,000 tracks are flooding the zone daily, the real power in the industry doesn't lie in making the music anymore. The power lies entirely in owning the plumbing that distributes that flood to your headphones.

SPEAKER_01 6:26

Which brings us to the consolidation super cycle.

SPEAKER_00 6:29

Exactly. Wall Street has realized that the pipes themselves are the most valuable asset. Just look at the historical mergers and acquisitions over a recent six-month window we analyzed for this deep dive.

SPEAKER_01 6:39

The numbers are staggering.

SPEAKER_00 6:41

They really are. Concord and BMG merged in a massive $7 billion deal. Universal Music Group, UMG, bought downtown music, which include the massive independent distributors like CD Baby and FUGA for $775 million.

SPEAKER_01 6:56

Right, and Primary Wave raised that record $2.23 billion royalty fund.

SPEAKER_00 7:01

But the absolute wildest data point to me, DistroKid. The platform that millions of everyday indie artists use to upload their music was acquired by CVC Capital Partners for around $2 billion.

SPEAKER_01 7:13

Yeah, that was a seismic shift.

SPEAKER_00 7:14

Because of that single acquisition, private equity now controls 30 to 40% of all global new music uploads.

SPEAKER_01 7:23

The institutional money is treating music infrastructure as a passive asset class. You see Sony partnering with the GIC Sovereign Wealth Fund to commit billions to legacy catalogs.

SPEAKER_00 7:34

Shamrock Capital raising 800 million.

SPEAKER_01 7:36

Exactly. Firms like Duetti raising hundreds of millions to target independent catalogs, while groups like Jamin Capital, Mogul, and Curve Royalty Systems build out the financial infrastructure, the capital is just rolling up everything in its path.

SPEAKER_00 7:49

But I have to push back here, just to get to the root of this for you listening. Let's say I'm an independent artist. Yeah. Right? Does it actually matter to me who owns the literal pipes as long as my song still reaches Spotify and Apple Music?

SPEAKER_01 8:02

Well.

SPEAKER_00 8:02

I mean, if the music gets to the digital shelf, isn't it just a matter of what the distributor charges me in annual fees? Why is private equity owning DistroKid an existential threat to the creator?

SPEAKER_01 8:13

It matters because of the historical context of why these tools were built in the first place. Think about it. Independent music platforms, whether it's CD Baby, FUGA, or DistroKid, were fundamentally built to route around the major label gatekeepers.

SPEAKER_00 8:29

Right. They were the alternative.

SPEAKER_01 8:31

Exactly. They were designed as escape hatches so that an artist could retain ownership of their masters, the actual sound recordings, and control their publishing administration without having to sign their life away to a major label.

SPEAKER_00 8:44

Ah, I see where you're going with this.

SPEAKER_01 8:45

Aaron Powell What we are seeing now is that those exact independent tools are being absorbed by the major labels and massive private equity conglomerates. The ecosystem is folding back in on itself.

SPEAKER_00 8:57

Right. So the independent artists' distribution, their marketing, and their eventual option to sell their catalog are all being bottlenecked by the exact same centralized system they originally thought they were bypassing.

SPEAKER_01 9:08

Exactly. The rebellion just got bought out by the Empire.

SPEAKER_00 9:10

Wow. Okay, let's follow that logic downstream. The music leaves these private equity-owned pipes and eventually lands on a streaming platform. Which takes us to streaming's structural rot.

SPEAKER_01 9:23

Yes.

SPEAKER_00 9:24

Because the foundational DNA of a streaming platform completely dictates the financial value of the music it hosts. Let's contrast Spotify and Coobaz here.

SPEAKER_01 9:32

It's night and day.

SPEAKER_00 9:34

Look at Spotify's origins. The founders, Daniel Eck and Mart Lorensen, they did not come from the music industry. They came from the world of ad tech.

SPEAKER_01 9:42

Right. Lorentzen literally co-founded TradeDoubler.

SPEAKER_00 9:44

Exactly. So to their foundational algorithm, music was not inherently valuable art. It was just a traffic source. It was, as the industry calls it, acoustic grout used to fill the blank spaces between advertising events.

SPEAKER_01 9:57

The term acoustic grout perfectly encapsulates their operational philosophy.

SPEAKER_00 10:01

Right.

SPEAKER_01 10:01

If you view music simply as a utility to keep a user logged in, your primary goal is to acquire that utility as cheaply as humanly possible.

SPEAKER_00 10:09

Exactly, which led directly to the infamous perfect fit content ghost artist scandal, which was heavily reported on by Dagens Nyhatter.

SPEAKER_01 10:17

Oh, that whole situation was wild.

SPEAKER_00 10:19

Spotify essentially commissioned cheap instrumental filler music under fake artist names to avoid paying standard royalties to real creators. They routed this filler through their own massive editorial playlists via a company called Firefly Entertainment.

SPEAKER_01 10:36

And Firefly happened to be a production company run by Frederick Holt.

SPEAKER_00 10:40

Right, who was a lifelong personal friend of Nick Holmston, who was Spotify's global head of music at the time.

SPEAKER_01 10:46

It is a stunning conflict of interest.

SPEAKER_00 10:48

Unbelievable. They had one single composer, Johann Rohr, who generated 2,700 tracks under 656 completely fake names. Wow. He gathered 15 billion streams on the platform. Johann Rohrer mathematically has more streams than the Red Hyde Chili Peppers, and the general public has no idea who he is.

SPEAKER_01 11:06

And we really have to explain how that actually hurts the independent artists listening to this. Streaming platforms operate on what is called a Pro Rada royalty pool.

SPEAKER_00 11:14

Right. Explain that.

SPEAKER_01 11:15

So all the subscription money from listeners goes into one giant pie, and that pie is sliced up based on total stream counts. Every time Spotify artificially funnels millions of streams to house brand ghost artists, they are literally taking slices of the financial pie away from the legitimate independent artists who rely on that pool to pay their rent.

SPEAKER_00 11:36

It's just wealth extraction. And if you look at the baseline payouts, according to analysis, Spotify pays independent artists between 0.003 and 0.005 dollars per stream on the master recording.

SPEAKER_01 11:49

Which is abysmal.

SPEAKER_00 11:50

That is the lowest tier of any major platform, lagging significantly behind Title, Apple Music, and YouTube. And it gets worse. As of 2024, Spotify pays literally zero royalties for tracks that generate under 1,000 streams a year.

SPEAKER_01 12:04

Yeah, that policy change hit a lot of people hard.

SPEAKER_00 12:07

And they also introduced Discovery Mode, which is essentially a modern legalized form of payola. Artists are asked to surrender 30% of their already microscopic royalty rate just for the promise of a temporary algorithmic boost.

SPEAKER_01 12:19

It's a race to the bottom. But then you have COBAs.

SPEAKER_00 12:21

Right, let's look at the stark contrast with COBAS. COBAS pays an independently audited rate of 0.0187, $3 per stream.

SPEAKER_01 12:31

Which is massive in comparison.

SPEAKER_00 12:33

It is. Because they cater to audiophiles who value curation, they generate $121.13 in average annual revenue per user. The broader industry average is just $22.38.

SPEAKER_01 12:47

It's a huge delta.

SPEAKER_00 12:48

They achieved this through human curation, focusing on full album sequencing and utilizing initiatives like their Kubusium Awards, where actual human experts judge the quality of records.

SPEAKER_01 13:00

But and I know you have a thought on this.

SPEAKER_00 13:02

Yeah, here's where it gets really interesting. When I look at Kobaz, I think of a grocery store analogy. Whole Foods scale brilliantly without ever having to adopt the operational ethics of Walmart, right?

SPEAKER_01 13:11

Right.

SPEAKER_00 13:11

But I have to wonder, can COBUS actually build a recommendation engine good enough to attract the casual everyday listener without eventually relying on a free-tier subsidy?

SPEAKER_01 13:22

It's a fair question.

SPEAKER_00 13:23

Don't they eventually need massive scale? And doesn't massive scale inherently mean diluting their ethical standards?

SPEAKER_01 13:30

It is the defining tension of their business model. Look, Kobaz certainly has flaws. They have noticeable catalog gaps, a somewhat rigid recommendation algorithm, and a user experience that can feel a bit clunky compared to the majors.

SPEAKER_00 13:44

Yeah, the app isn't as sleek.

SPEAKER_01 13:46

But we need to differentiate the type of problem each platform has. Kobaz's flaws are purely engineering problems. You can always hire better developers to refine your search features and improve the UX. That's true. Spotify's dysfunction, however, is a fundamental values problem built into its core DNA from its ad tech origins. Kobaz just needs better code. Spotify needs an exorcism.

SPEAKER_00 14:09

An exorcism, that is perfectly put. Because if these platforms are structurally designed to treat music as faceless filler, it does something profound to the culture.

SPEAKER_01 14:16

It really does.

SPEAKER_00 14:17

It fundamentally destroys the concept of the superstar. Which takes us to the death of the superstar and the shift to the relationship economy.

SPEAKER_01 14:24

Yes. Think back to the golden age of the global superstar. Michael Jackson, the Beatles. You have 55,600 fans packed into Shea Stadium screaming at 131 decibels.

SPEAKER_00 14:40

Just absolute mania.

SPEAKER_01 14:41

Exactly. But that hysteria wasn't generated just because the music was incredible. It was heavily reliant on artificial scarcity. Right. Scarcity was the defining feature of the 20th century music business. A tiny handful of gatekeepers controlled the physical supply of attention, a few TV channels, a few terrestrial radio stations, a few major magazine covers.

SPEAKER_00 15:02

You had to tune in or you missed it.

SPEAKER_01 15:04

Right. The fan had zero direct access to the human being behind the art. The superstar was always a supply-side illusion. But today, the algorithms have inverted that reality entirely.

SPEAKER_00 15:14

They haven't just removed the distance between the artist and the fan.

SPEAKER_01 15:17

No, they're actively erasing the artist's identity entirely from the consumption process. The analyst Chris Dallariva pointed this out beautifully. Modern listeners on TikTok will frequently save a song using the plus button, listen to it repeatedly, and never once register the actual name of the artist who created it.

SPEAKER_00 15:35

It is wild to think about. I mean, look at a band like Imagine Dragons.

SPEAKER_01 15:39

Okay.

SPEAKER_00 15:39

They have three of the top 100 most streamed songs in the history of the Spotify platform Believer, Thunder, and Demons. But I guarantee you, if you stopped an average listener on the street, they could not name two members of the band.

SPEAKER_01 15:54

That's actually a great point.

SPEAKER_00 15:55

The algorithm successfully turned one of the most statistically popular rock bands on earth into a faceless audio input.

SPEAKER_01 16:02

And the financial math here for everyday artists is absolutely brutal.

SPEAKER_00 16:06

Yeah, let me break down the new math for you, the listener. Out of the roughly 13 million artists who have uploaded music to streaming platforms, fewer than 14,000 made over $100,000 in royalties last year.

SPEAKER_01 16:18

14,000 out of 13 million.

SPEAKER_00 16:20

Yeah. Under the old streaming model, if an artist gets 1 million streams, they might make $3,000 to $5,000. But if they pivot to the relationship economy and they manage to find just $10,000 actual dedicated fans willing to spend $10 directly with them, that generates $100,000.

SPEAKER_01 16:40

It changes the entire paradigm.

SPEAKER_00 16:42

So what does this all mean? Because frankly, I look at that and wonder if this superfan model is actually accessible to the average indie artist.

SPEAKER_01 16:50

Why wouldn't it be?

SPEAKER_00 16:51

Well the math says you need 10,000 fans, but when you have 13 million artists desperately fighting for algorithmic attention, isn't that funnel impossibly narrow for someone starting from zero?

SPEAKER_01 17:01

Oh, it is an incredibly brutal funnel. But we have to examine the mechanics of how value is actually captured today. The modern relationship economy operates on four distinct stages: discovery, capture, engagement, and monetization. Historically, those massive Shea Stadium superstars only ever had access to the very top of that funnel discovery. They relied on MTV or radio to blast their song to millions, and then just blindly hoped that a percentage of those people would drive to the mall and buy a CD.

SPEAKER_00 17:33

Right. There's no direct connection.

SPEAKER_01 17:34

Exactly. The modern independent artists' true structural advantage is that they can own the bottom three layers of the funnel. By capturing a direct email address, engaging through platforms like Discord or Patreon, and monetizing at diverse price points like vinyl or private streams.

SPEAKER_00 17:51

Aaron Powell So treating listeners as actual human beings rather than just anonymous, fraction of a cent stream counts.

SPEAKER_01 17:56

Yes. The relationship itself becomes the asset.

SPEAKER_00 17:58

But and this is a big but even if an independent artist does absolutely everything right, if they fight through the noise, capture the fans, drive the streams, and build that parasocial relationship, they're still about to be structurally robbed of their historical earnings by a ticking legislative clock.

SPEAKER_01 18:14

This is the roughest part.

SPEAKER_00 18:16

And this brings us to our final story: the 2027 Mechanical Royalty Time Bomb.

SPEAKER_01 18:21

This is perhaps the ultimate example of industry bureaucracy actively penalizing the independent creator. To understand this, we have to look back to 2021 when the Music Modernization Act created the Mechanical Licensing Collective, or the MLC, headquartered down in Nashville. Right. When the MLC was formed, the major streaming platforms were legally required to transfer over a massive black box of unmatched historical mechanical royalties that had been accruing since 2007. We are talking about $424,384,787.

SPEAKER_00 18:57

Over $424 million.

SPEAKER_01 19:00

Sitting in a black box.

SPEAKER_00 19:01

And just to clarify for you listening, a mechanical royalty is the specific money owed to the songwriter and publisher every time a song is streamed or reproduced. This is entirely separate from the money paid to the recording artist.

SPEAKER_01 19:14

Exactly.

SPEAKER_00 19:14

This massive pile of cash is sitting in a black box because the metadata, the digital name tag attached to the file, didn't perfectly match the songwriter to the stream. Maybe someone uploaded a cover song to DistroKid and just uh forgot to tag the original composer.

SPEAKER_01 19:29

It happens all the time.

SPEAKER_00 19:30

And here's where the time bomb starts ticking. Starting in early 2027, the MLC is legally mandated to begin distributing this massive pool of unclaimed money. But they are not distributing it to the independent songwriters who actually earned it but failed to fill out their metadata correctly. They are going to distribute it pro rata based on existing market share.

SPEAKER_01 19:53

Which is just wild.

SPEAKER_00 19:55

Think of the mechanics like this. It is like someone finding a lost wallet stuffed with $424 million in cash lying on the sidewalk.

SPEAKER_01 20:02

Okay.

SPEAKER_00 20:03

And instead of the city taking the time to track down the rightful owners, they just walk over and hand the cash to the richest guy in town simply because he already possesses the largest bank account.

SPEAKER_01 20:13

Using this catchphrase, this raises an important question about how the system prioritizes administrative convenience over a systemic fairness. Because of that pro-rotted distribution formula, starting in 2027, major label conglomerates like WMG and massive publishers like Cobalt will literally receive a massive multimillion dollar windfall.

SPEAKER_00 20:32

Entirely generated by independent songwriters failure to do their administrative paperwork.

SPEAKER_01 20:37

Yes. And it is crucial to understand that the 2027 clock only addresses the historical pre-2021 money. Unmatched mechanical royalties continue to accrue into the black box every single month from current ongoing streams.

SPEAKER_00 20:52

But the pot is just getting bigger.

SPEAKER_01 20:54

Exactly. The takeaway for any artist trying to navigate this landscape is stark and urgent. Do the paperwork. Register your works. Because the architecture of the system is actively designed to absorb your money by default if you don't.

SPEAKER_00 21:06

Man, it is a sobering wake-up call for anyone operating in this space.

SPEAKER_01 21:14

We really have.

SPEAKER_00 21:14

We watched AI flood the ecosystem with 90,000 synthetic tracks a day. We explored how private equity firms are quietly buying up the very pipes that deliver our music. We broke down how ad tech algorithms are actively erasing the identities of the artists we listen to. And we mapped out a ticking $424 million time bomb set to transfer independent money straight into corporate pockets. It is an incredibly turbulent time to be a creator or a fan.

SPEAKER_01 21:45

It is. And I want to leave you with one final thought to mull over. Building directly on a specific piece of technology we touched on earlier from STVDIO, they are currently developing an AI agent called SX. This agent is designed to automatically distribute music to over 30 stores, autonomously build rollout plans, locate and pitch to playlists, and even automatically generate an artist's EPK, their electronic press kit.

SPEAKER_00 22:09

Wow. Automation at every step.

SPEAKER_01 22:11

Exactly. So if we are entering a reality where AI agents are automating the creation, the release strategy, the marketing, and the press kits and algorithmic curation on platforms like Spotify is automating the discovery and the listening process. Right. Are we rapidly approaching a closed loop future? A future where AI is simply generating acoustic grout specifically for other algorithms to listen to, while the actual human beings, both the artists and the fans, are left standing entirely outside the room.